The bitcoin price crashed $400 following rumors that China was planning to make it illegal to operate a bitcoin exchange within the country.

According to a regional financial website, China will declare operating a bitcoin exchange to constitute “illegal economic activities”. Earlier this year, the country’s central bank begun monitoring bitcoin exchanges more closely, leading many to fear that regulators would soon shut them down. Ultimately, this did not occur, although the People’s Bank of China (PBoC) stated it would continue to conduct on-site inspections.

However, the PBoC has begun to crack down on activities within the cryptocurrency space. Just this Monday, the bank ruled that initial coin offerings (ICOs) were illegal and ordered startups to return all crowdsale funds to their investors.

The markets had just begun to recover from the sell-off that the ICO ruling initiated, but today’s rumors caused the bitcoin price to experience a flash crash. At 13:20 UTC, the bitcoin price was trading at an average of $4,619. Within 10 minutes, bitcoin dropped to $4,224. At present, the CoinMarketCap average bitcoin price is $4,265.

BTC Price Chart from Bitfinex

On some exchanges, such as Bitfinex, the bitcoin price has climbed back above $4,300. However, BTC/CNY is getting pummeled on Chinese exchanges, forcing the average price down. OKCoin, which accounts for more than $90 million in daily bitcoin volume, prices bitcoin at $3,815–more than $500 below BTC/USD on Bitfinex. The coin is faring even worse on Huobi, where BTC/CNY is trading at $3,794.

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Chart from CoinMarketCap

At the time of writing, the Chinese government had yet to confirm the ban. However, Chinese traders are clearly spooked, which is why they are selling coins so far below the global average. China comprises a significant portion of the cryptocurrency ecosystem, so an official ban would undoubtedly lead to a price contraction. Investors should expect volatility to continue as this story develops.

Posted by Josiah Wilmoth

Josiah is a former ancient and medieval literature teacher. He has been writing about cryptocurrency since 2014, and his work has been cited in Business Insider, NPR, and Yahoo! Finance. He lives in rural North Carolina with his wife and son. Email him directly at [email protected]